New York, NY —

Many New York retailers struggled through a difficult first quarter…stores like Macy’s and Saks Fifth Avenue, all the way down to your favorite boutique. In January, shopkeepers on the trendy Smith Street in Brooklyn told WNYC that the situation was grim.

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TANVIR SHAMIM: Business right now is terrible. We’ve been here for more than 20 years but we’ve never faced this kind of situation.

KARA LUGGEN: People aren’t shopping right now with the economy being the way that it is, and with it being January, the weather’s not working in our favor.

As part of our Main Street series, WNYC's Lisa Chow returns to Smith Street to find out, as the weather warms, how business looks for one of the street's anchor retailers, the clothing chain, Brooklyn Industries.

REPORTER: The store stands at the busy corner of Atlantic Avenue and Smith Street in Brooklyn. It's the gateway to the Smith Street shopping district, with the Brooklyn Industries' black, red and gold logo hanging from the second story, above the sidewalk. On a recent Friday afternoon, the store got pretty busy, which makes you wonder: is the economy bouncing back?Lexy Funk is the clothing chain's CEO. She says just in the last few weeks, she’s started to see an uptick in sales.

FUNK: It’s a little bit like surfing. If we can just catch this wave, and keep the customers coming and keep telling them why they need to be shopping at our store, then I think we can come out of this difficult recessionary time.

REPORTER: Funk and her husband founded the company 11 years ago, making messenger bags out of a small factory in Williamsburg. In the last three years, Brooklyn Industries grew aggressively, with sales doubling to $14 million. It opened its first stores outside New York, in Portland, Oregon and Chicago, and had plans to open some 40 more by 2011. But ever since Lehman Brothers failed in September, and the sales slump became apparent, the retailer's game plan has changed. Funk says the priority has shifted from growing to scaling back.

FUNK: We looked back at our budget, and we cut absolutely everything we could. We talked to some of our factories and we cut some styles. No hiring outside photographer. No coffee in the lunch room.

REPORTER: The clothing chain also negotiated down rent on two of its Manhattan stores and laid off workers.

FUNK: We came to the conclusion that we had to cut, we cut three positions. And one of the biggest things we did was rather than cut five people, my husband and I haven’t taken a salary since Christmas.

REPORTER: The 38-year old CEO walks through company headquarters, housed in old industrial building near the Brooklyn Navy Yard.

FUNK: This is the production area, so people who work here talk to the factories, mills, zipper suppliers.

REPORTER: The design of all the dresses, T-shirts, jackets, sweaters, pants and bags happens here. The cutting and stitching happens in factories in China, Mexico and Peru. And it turns out, even in times of crisis, there’s opportunity for this retailer. Funk sits in a conference room with her production manager Lisa Lazarus. They're planning a trip to Peru, to visit some factories that are accepting business from Brooklyn Industries for the first time. That's because these factories are losing work from much larger retailers, like the Gap, Limited and Abercrombie and Fitch, which are also scaling back. Lazarus calls their broker, Ana Herrera, in Peru to talk about a sweater factory and its willingness to accept smaller orders.

LAZARUS: What would be an average minimum per color?

HERRERA: Each color from 80 to 100 pieces.

LAZARUS: That’s fantastic.

Funk sees a chance, with the economic slowdown, to shift some of Brooklyn Industries’ manufacturing from China to Peru, which is closer to home and whose factories specialize in fabrics that are becoming hot among customers, like organic cotton. But this decision, as well as many decisions the company makes, depends on an entity we've been hearing a lot about in this crisis. The bank. In Brooklyn Industries’ case, Commerce Bank, which is now TD Bank. It lends this retailer money, to buy the clothes, import the clothes, put the clothes on the shelves, and sell the clothes to customers.

FUNK: It's a ghost behind your shoulder every day. What's the bank going to think?

REPORTER: Funk says, when retailer Steve and Barry’s went out of business last year, her banker immediately called and asked, why did they fail and how are you different?

FUNK: That's an enormous pressure, this uncertainty of how you're performing relative to other companies and how you're performing as compared to the bank's expectations.

REPORTER: Funk says the big risk is that the bank decides Brooklyn Industries is not meeting expectations and pulls the company's credit line. So far, the bank continues to lend to Brooklyn Industries. And Brooklyn Industries is trying to adapt, as it watches some of its neighbors on Smith Street go out of business. They’re hopeful that with the weather getting warmer, more people will get out and shop. For WNYC, I'm Lisa Chow.